USDJPY falls on Wednesday, halting the overnight recovery from a multi month low.
The USDJPY pair struggles to capitalize on the previous day’s impressive 140-145 pips recovery from the 147.15 range. Or its lowest level since September 14, and falls during Wednesday’s Asian session. Spot prices, on the other hand, manage to stay above the 148.00 round figure. And remain at the mercy of the price dynamics of the US Dollar (USD).
The USD did receive a little boost. Tuesday. And recovered from a near three month low in response to hawkish FOMC minutes. Which showed policymakers supporting the case for maintaining interest rates higher for longer in order to keep inflation under control.
Investors, on the other hand, appear to believe. That the US Federal Reserve will hold interest rates stable rather than raise them. Furthermore, current market pricing points to a first rate decrease at the FOMC policy meeting on April 30-May 1.
This is bolstered by the fact that the yield on the benchmark 10-year.US government bond is still near a two month low, acting as a headwind for the US currency.
Speculation that the Bank of Japan may cease its negative interest rate policy in early 2024 is also a drag.
The Japanese Yen (JPY), on the other hand. Benefits from a decreasing US-Japan interest rate disparity and anticipation. That the Bank of Japan (BoJ) would virtually surely abandon its negative interest rate policy. In the first several months of 2024. Interest rates will be set. The hawkish shift follows the Bank of Japan’s move last month to loosen the cap on long-term interest rates by adjusting its Yield Curve Control (YCC) policy. Furthermore, Bank of Japan Governor Kazuo Ueda stated last week that Japan is making headway toward its 2% inflation objective and that the central bank will not necessarily wait until real wages begin to rise before exiting its decade-long accommodating policy settings.
This means that the overnight recovery could still be classified as a short-covering rally, especially given the recent 500-pip drop from the 152.00 area, or the YTD peak retested earlier this month. Furthermore, the aforementioned fundamental backdrop suggests that the USDJPY is following the path of least resistance.
USDJPY investors are now looking for some push from the US economic docket.
The pair is still falling. Market investors are now looking for some push later in the early North American session from the US economic docket, which includes Weekly Initial Jobless Claims data, Durable Goods Orders, and the updated Michigan Consumer Sentiment Index.
